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Takeover rumors: Returns and pricing of rumored targets

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  • Chou, Hsin-I
  • Tian, Gloria Y.
  • Yin, Xiangkang

Abstract

Rumors can be classified into two types according to whether they can credibly predict impending events. An analysis of takeover rumors of publicly US companies shows that the types of rumors are statistically distinguishable by the returns of the rumored targets before the publications of respective rumors. However, market responses to rumors on the day of and the day after the rumor's publication are statistically indifferent. Trading on takeover rumors can be profitable. Moreover, rumored targets display a different return pattern than other takeover targets, and their takeover premiums cannot be explained by the markup pricing or substitution hypothesis.

Suggested Citation

  • Chou, Hsin-I & Tian, Gloria Y. & Yin, Xiangkang, 2015. "Takeover rumors: Returns and pricing of rumored targets," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 13-27.
    • Handle: RePEc:eee:finana:v:41:y:2015:i:c:p:13-27
    DOI: 10.1016/j.irfa.2015.05.006
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    Cited by:

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    3. Yao Hongxing & Zou Yushi, 2019. "Research on Rumor Spreading Model with Time Delay and Control Effect," Journal of Systems Science and Information, De Gruyter, vol. 7(4), pages 373-389, August.
    4. Li, Qian & Wang, Jiamin & Bao, Liang, 2018. "Do institutions trade ahead of false news? Evidence from an emerging market," Journal of Financial Stability, Elsevier, vol. 36(C), pages 98-113.
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    7. Betton, Sandra & Davis, Frederick & Walker, Thomas, 2018. "Rumor rationales: The impact of message justification on article credibility," International Review of Financial Analysis, Elsevier, vol. 58(C), pages 271-287.
    8. Frederick Davis & Svetlana Davis & Xiaoyang Sha & Thomas Walker, 2022. "The impact of takeover anticipation on rival firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1264-1288, July.

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    More about this item

    Keywords

    Takeover rumor; Merger and acquisition; Runup; Markup; Takeover premium;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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